Question: A stock index currently stands at 100. The continuously compounded risk-free interest rate is 8% and the dividend yield on the index is 3%. For

A stock index currently stands at 100. The continuously compounded risk-free

A stock index currently stands at 100. The continuously compounded risk-free interest rate is 8% and the dividend yield on the index is 3%. For simplicity, take 1 month -1/12 years. (a) What should the prepaid forward price of a 6-month prepaid forward contract on the index be? (b) If the market prepaid forward price of the contract is 98.8, how can you make an arbitrage profit

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